Independent hotels: Can they loosen the OTA grip?

When we think of the lodging industry in the US, many of us think of chains – those big brands such as Marriott, Hilton, and Choice that drive distribution trends and website bookings.

NB This is a viewpoint by Lorraine Sileo, senior vice president of research for Phocuswright Inc.

With household names such as Holiday Inn and Best Western that appeal to the US road traveler, chains also make a nice payday for online travel agencies (OTAs).

Though they seem to dominate the market – and they DO – there’s another, more elusive set of properties that is less frequently tracked, and even less understood. We’re referring to the independents, or what we call “the other 30%” of the US lodging landscape.

While it’s true that 70% of all room supply in the US belongs to chains, that still leaves us with 1.2 million rooms operating on their own. (To be sure, a small percentage of non-branded properties are affiliated with rep companies or voluntary chains such as Leading Hotels of the World and Worldhotels.)

According to Phocuswright and h2c’s Independent Lodging Market: Marketing, Distribution and Technology Strategies for Non-Branded Properties, independents will generate US$68.1 billion in room revenue this year. Although this represents less than 30% of all hotel revenue, that’s still a significant volume – bigger than car rental, tour and cruise combined.

Despite their size, independent lodging suppliers operate at a disadvantage. Many lack the resources, tools and expertise to compete with chains and each other. Their makeup is quite fragmented (inns, B&Bs, resorts, hotels/motels), making it hard for properties to band together for the greater good and consolidate marketing and distribution.

In many cases, independents are on their own when making important pricing and channel management decisions, and that often means being left behind.

OTAs play surrogate for brands

Without the branding and operational support of chains, it’s little surprise that independent properties seek (reluctantly) the assistance of OTAs. Only a small minority have implemented such helpful tools as a channel manager or a threvenue management system, so they often look to OTAs to make those decisions for them.

As a result, OTAs will represent 58% of US independent properties’ online volume this year, compared to a 48% share for chains (see Figure 1). While independents account for 28% of total hotel gross bookings, their share of OTA hotel gross bookings jumps to 40%, or roughly $10 billion.

That means that Expedia and Booking.com can rely on a steady stream of independent business for years to come, regardless of what chains do in the long term.

Pinning hopes on OTA alternatives

With so much reliance on intermediaries, it’s no wonder that independent properties cited rising third-party costs as a top marketing and distribution concern (see Figure 2). Just like chains, independents want to drive all their business direct, preferably to their websites.

While that’s not realistic without the proper tools and expertise, hotels won’t stop trying to detach themselves from OTAs. Most are pinning their hopes on TripAdvisor to help drive direct bookings via TripConnect and Instant Booking.

Use of SEO/SEM, social media and email to engage travelers also ranks high.

About a quarter of independents plan to increase investment in Google Hotel Finder in the future.

Despite these efforts, their share of business from OTAs isn’t expected to decline anytime soon.

Across the pond

The European landscape is almost an inverted image of the US.

In Europe, chains have long been the minority while independent lodging – small and midsize hotels and guesthouses, as well as aparthotels, B&Bs, vacation rentals and other non-branded properties – rules the roost. Independents make up more than two-thirds of room supply in Europe and more than 90% of all properties.

They also differ from the U.S. in their channel distribution.

Fragmentation, lack of tools and resources, and small room size (the average property is just 14 rooms) make European properties even more reliant on OTAs than their U.S. counterparts. Intermediaries will represent 74% of European independent lodging online bookings in 2015 vs. 58% for the U.S. They’re in good company. European chains also rely heavily on OTAs, though not quite as much (see Figure 3).

All suppliers want to wean themselves off OTAs eventually. But for independent lodging suppliers, is it even necessary?

With offline revenue factored in, OTAs represent less than 30% of independents’ total business, and that percentage is not expected to grow. OTAs can assist properties with global reach, while also guaranteeing them an important mobile presence. Because independents can’t keep up with distribution and marketing demands, they always will need partners. They just need better tools to manage those partners and make the same smart distribution and marketing decisions as their franchised cousins.

Phocuswright and h2c’s summary report will be available soon. To see the key findings infographic and more information about the project, click here.

Comments

Simon, Google, Bing, Yahoo reward websites with deep, relevant, engaging and fresh content. This why you see “portal” sites like OTAs, major hotel brands, etc. dominating the organic listings.
Until hoteliers learn how to counter the OTAs with SEO-friendly websites, featuring deep, relevant, fresh and engaging content as opposed to thin, unappetizing and stale content, I am afraid the OTAs will continue to dominate the organic listings on SERPs.

I see plenty of fresh & relevant content that never makes it anywhere near page one in organic search Max – in fact, I’ve created a deal of it myself…

With the sole exception of TripAdvisor (which may not class itself as an OTA anyway), I see little such content from the page one grabbers – they’re possibly there because they get a lot of traffic, but they offer little that’s informative when folks are searching for an hotel in a particular location

Search engines could easily exclude them & allow them to rely on the advertising they already do

If you see a fresh approach from an independent hotel that really ranks in organic search please let us all know!

Dr Ghassan AIDI

In my opinion the best solution that Hotels association create an OTA done by Hoteliers to the Hoteliers in various markets with a resonance commission and more professional attitude and positive toward the Hoteliers-Accor did cancel all agreement with OTA and doing fine, Mariott is next

Hey Lorraine, I look forward to reading your research on this. Of course indepenedent hoteliers would love to get all their bookings from direct channels, which for them include walk-ins, their own site bookings, but we all know that’d result in a a very limited set of bookings. The indies that work with us do so because we provide demand from broad exposure (including a huge international presence), the ability to target more the demand that they want, and access to some great analytics and tools to help them optimize their business. And frankly, we couldn’t’ be happier with the value that we provide these hoteliers.

One point of debate on your assessment of “first party/direct bookings.” Meta search, search providers/SEM, and even brands are third parties that charge a lot for bookings. (As an aside, it’s a pet peeve of mine when brand bookings get credited for being “first party” – they are not as most owners will agree.) The key for all hoteliers is to partner smartly on the right mix as you point out. We certainly don’t have any “tight grip” on independents. We are just another tool in the toolbox for their distribution strategy.

I was hoping to learn something to help reduce my reliance on the OTAs. The percentage will continue to climb if we do not actively engage with our guests. This article surprised me at the end… it is necessary more than the simple sentence at the end. Max is correct…

How can “Book on TripAdvisor”/Instant Booking and “Book on Google” be “direct bookings” for the hotel?
Both Google and TripAdvisor have made numerous claims that “Book on Google” and “Book on TripAdvisor” are de facto bookings directly with the hotel. Let’s not fool ourselves: Both of these programs are not “direct bookings channels” or some CPA (Cost per Acquisition) advertising formats. These are pure OTA services where both Google and TripAdvisor insert themselves between the travel consumer and the hotel, take over the customer engagement and relationship, and close the deal/the booking on its own website, and get an agency commission for doing the “agency work”, similarly to all OTAs and traditional travel agents.

These new programs contradict the mere definition of the direct online channel. The Direct Channel is a “Distribution channel in which a producer (manufacturer of good and services) supplies or serves directly to an ultimate user or consumer, without any middleman (agent, distributor, wholesaler, retailer).” (BusinessDictionary.com). “Owning the customer” and engaging the customer on a one-to-one basis is the ultimate objective of the direct online channel.

If you analyze the travel consumer path-to-purchase on both Book on TripAdvisor and Book on Google, you will find that it is no different from a booking on Expedia, Booking.com or on any OTA site. It is exactly the same flow for any travel consumer on any OTA site.

In my view, both “Book on Google” and “Book on TripAdvisor” OTA-type services “deface” the hotel, remove the brand equity from the customer engagement and convert it into an engagement and brand interaction between Google or TripAdvisor and the customer i.e. into a pure OTA engagement..

Max, I totally agree. The article is about indie hotel perceptions – they believe that TRIP can help them book “direct”, which to them probably means bypassing OTAs. Now with Priceline as a major TRIP partner, we know that’s not realistic.